The Good Ship Gannett sails into troubled waters

ICYMI, the Gannett media chain issued a disappointing fourth-quarter earnings report last week. Industry observers saw signs of trouble for the corporate owner of the Burlington Free Press. Ryan Chittum of the Columbia Journalism Review called the results “basically miserable.”

One big problem: Circulation revenues showed a slight increase for the year, but declined in the fourth quarter. The annual results were buoyed by the imposition of paywalls and price hikes for the paper editions; the 4Q falloff may be a sign of reader fatigue with both. Rick Edmonds of the Poynter Institute:

This raises the concern that capturing revenue from new digital subscribers and pairing “all access” print/digital bundles with a big price increase could be a one-time revenue event. Gannett not only failed to continue gaining circulation revenue at the end of the last year, it lost a little, as these subscriptions came up for renewal.

Edmonds notes that Gannett is hoping for another revenue boost this year, as its local papers begin to carry a slimmed-down version of its national flagship USA TODAY; Gannett’s CEO Gracia Martone says “the expanded content could provide the rationale for another round of price increases.” As I predicted several weeks ago in this space. This time, I’m not especially happy to be right.

They’re really pushing the limits of reader fatigue. And, as Chittum reports, Gannett properties are poorly positioned to thrive in the digital age.

The medium- to long-term point of a paywall strategy is to create a new, growing digital revenue stream while protecting your existing digital-ad business and slowing the decline of print revenue as much as possible. The end game is, hopefully, an all-digital business that can support a strong newsgathering operation without print subsidies.

But a paywall imposes the quality imperative more than ever. You have to have a strong newsgathering operation to justify charging online in the first place.

Gannett, though, has a well-earned and long-established reputation for high margins and poor quality. Last year it generated 22 percent operating cashflow margins, paid out $183 million in dividends, and laid off hundreds of journalists.

And there’s the rub: Gannett’s cost-cutting inflated its profit margins in the short run and allowed it to maintain high dividend payouts at the expense of its newspapers’ quality. And mediocre media outlets aren’t likely to bring eager customers through the digital door. Chittum:

It’s worth pointing out that Gannett doesn’t break out its digital-only subscriber numbers in its securities filing. A year ago it had snared a pitiful 46,000 subscribers across its 81 papers but projected it would a quarter-million digital-only subs by now. You can bet it didn’t come close to that. If Gannett had something remotely positive to say, it would tell us.

Seen through these expert analysts’ eyes, Gannett is taking on water as it sails into stormy seas. And its captain may not particularly care all that much. During the 4Q announcement, CEO Martone was asked if Gannett might follow the lead of News Corp. and Tribune and spin off its newspaper operations while keeping its cash-cow broadcasting properties. Her reply wasn’t exactly warm and fuzzy.

In essence, Martore’s answer was not now, but maybe later.

Sounds like the captain is ushering Gannett newspapers into the lifeboats. I think we can expect the Burlington Free Press to continue cutting its news operation while asking readers to pay more. It might work in the short term, but it’s a recipe for eventual disaster.

News consumers in Vermont are relatively blessed by the presence of VTDigger and the new and improved news efforts at VPR and Seven Days. (And WDEV and the Mitchell Family Papers, which do good work with very limited resources.) It’s a good thing, since the Freeploid is already a shell of its former self, and continues to be drained by its corporate masters.